Respuesta :
Option is the best choice (c). The price of an asset and the interest rate are inversely correlated.
Why do interest rates and asset prices have an inverse relationship?
Because of the potential inability of collateral-constrained natural buyers to fully refinance the loans used to purchase the asset due to higher borrowing costs, a lower level of the asset price is required to compensate.
Rising interest rates often increase the cost of any debt while also increasing the income available to savers. With increased rates, the value of stocks, bonds, and real estate may also decline.
How do interest rates impact asset prices?
Bond prices often decrease as interest rates climb. On the other hand, bond prices increase when interest rates decline. Consider a hypothetical investor who owns a $1,000 10-year bond with a 3% coupon. The instrument will continue to pay 3% even if market interest rates increase to 4% in a year, but the bond's value could fall to $925.
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